Thursday, March 8, 2012

The Energy Industry’s Direct Role in the Economy

The industry directly affects the economy by using labour and capital to produce energy. This role is particularly important when economic growth and job creation are such high priorities around the world. Figure 1 shows the energy sector’s share of business sector GDP along with other industries in several Organisation for Economic Co- operation and Development (OECD) countries.2 Such data is difficult to obtain for other parts of the world.

Labour and Employment

The energy sector directly employs fewer people than might be expected given its share of GDP, especially when compared to other industries. Figure 2 shows the share of energy sector employment compared to other sectors in several OECD countries. In Norway, energy-related industries account for 20% of business sector GDP but just 2.3% of business sector employment. Norway’s wealth may be in oil, but that wealth supports other sectors, especially service industries. More than eight times as many Norwegians work in healthcare as in energy extraction.

share of business sectore gdp

Nonetheless, recent research in the United States demonstrates that the energy industry supports many more jobs than it generates directly, owing to its long supply chains and spending by employees and suppliers. As Senator Hoeven explains in his contribution, North Dakota: The New Frontier of American Oil, “Jobs in the oil industry create spending power and generate the need for services of many other kinds. Thus, many more jobs are created – a multiple of those in the oil industry itself.” Chapter 2 explores these impacts using the United States as a case study.

Energy-related industries do not have a large need for labour, but the workers they hire are relatively highly skilled and highly paid. For example, compensation per worker in energy-related industries is about twice the average in Germany, Norway, the United Kingdom and the United States and four times the average in Mexico and South Korea.

As a result of their high salaries, employees of the energy industry contribute more absolute spending per capita to the economy than the average worker. High wages in the sector reflect the fact that energy industry workers are much more productive than average, contributing a larger share of GDP per worker than most other workers in the economy.

Share of business sector employment, energy compared to other

In 2010, the shale gas industry directly contributed US$ 76.8 billion to US GDP and supported more than 600,000 jobs. However, its macroeconomic contributions during this period of slow recovery have significantly stimulated the overall US economy through a 10% reduction in the cost of electricity and lower consumer prices for goods and services, owing to lower input costs. Over the short term, economic models show that lower gas prices will help the larger economy in several measurable ways: a 1.1% increase in GDP in 2013; 1 million more jobs in 2014; and 3% higher industrial production in 2017 than would be anticipated without shale gas development.